(Finishing touches are put on China's first Zara clothing store in the Nanjing Road shopping area in Shanghai earlier this year. The Spanish retailer is owned by Inditex SA. Many U.S. and European apparel makers have produced much of their apparel in China, but shipped most of it elsewhere -- until now. )
For years, many U.S. and European makers of casual clothes have produced much of their apparel in China, but shipped it elsewhere -- until now.
Prompted by the easing of the country's regulatory hurdles and the explosive growth of the Chinese middle class, a number of retailers are starting to see the world's most populous nation as a budding clothes market itself.
Earlier this week, Hennes & Mauritz AB, the Swedish owner of the H&M fashion chain, said it will open its first Asian retail outlets in Shanghai and Hong Kong in early 2007. VF Corp., owner of Lee jeans, Kellwood Co., maker of Phat Farm and Baby Phat lines, Inditex SA's Zara and Mango have opened, or are about to open, stores in China.
By the end of this year, Jones Apparel Group Inc., will operate 50 stores in China, double the number at the end of 2005. The company also plans to add 10 to 15 stores a year under its Nine West, Anne Klein and Jones New York names. "There's a dearth of important product there," says Jones Apparel Chief Executive Peter Boneparth.
The market for casual clothes in China is projected to grow by an estimated 10% annually to reach $58 billion in sales by 2010, according to retail apparel consulting firm Kurt Salmon Associates.
"This sector is really in an embryonic stage. There are no major players," says Kurt Salmon Associates analyst Atiff Gill. Esprit Holdings Ltd. listed in Hong Kong, and Danish-based Bestseller sell womenswear but their overall share is still small, he says.
The Western brand names won't come cheap. Many American companies are jacking up prices and positioning their brands as premium, even though they may not have a similar image in the U.S. For example, VF sells Lee jeans for between $60 and $80 in China -- double the average retail price in the U.S., where the label is a midtier denim line sold primarily at J.C. Penney Co. and Kohl's Corp. department stores.
"It's hugely expensive," for China, says VF President and Chief Operating Officer Eric Wiseman. But, if consumers don't respond to the prices, "we could always come down...it's hard to go up if you start in the middle."
Levi Strauss & Co., which sells Levi's jeans at about 200 locations throughout China -- up from 20 in 2001 -- markets the product as "super, super premium" at $60 and up, about double the price in the U.S., says John Anderson, president of Levi's Asia-Pacific division.
Higher prices are meant to give brands cachet in the eyes of Chinese consumers, analysts say. Though the strategy has worked for premium brands, it may backfire for midpriced foreign brands that don't appeal to China's noveau riche generation, says MasterCard International economist Yuwa Hedrick-Wong. "It doesn't scream, 'I am rich.' They're more expensive than local alternatives; therefore they're nowhere," he says.
As Zheng Qin, a 24-year-old secretary, browsed through jackets and skirts priced between $20 and $40 at a store in Shanghai, she noted, "These world famous brands are not for general people. I just go window shopping." She also said she'd feel "really bad" if she bought a pricier Western label only to find it was made in China. Indeed, Mr. Gill estimates only 15% of China's walk-in browsers usually end up making a purchase, compared with about 30% to 35% of shoppers in Europe and the U.S.
Sizing may be another obstacle for retailers looking to break into China -- American pants, for instance, often don't fit narrower Asian hips. "They get these bunny ears here," says Fritz Winans, managing director of Asian development at Liz Clairborne Inc., ruefully patting his hips. If Liz Claiborne makes a move into China, Mr. Winans says the company will consider creating sizes and styles especially for the market, a pricier proposition than simply offering what Liz Claiborne sells in the U.S. and Europe.
Midpriced-apparel firms have long been wary of China. Unlike luxury goods, profits for middle-market retailers are thin because of the low-priced Chinese competitors. To avoid stiff import taxes, many companies make their clothing in China, transport the goods to Hong Kong and then back into China -- which drives up costs. Even more daunting, per capita gross domestic product in China averaged $6,800 in 2005, a small fraction of the $41,800 average in the U.S.
Finishing touches are put on China's first Zara clothing store in the Nanjing Road shopping area in Shanghai earlier this year. The Spanish retailer is owned by Inditex SA. Many U.S. and European apparel makers have produced much of their apparel in China, but shipped most of it elsewhere -- until now.
After touring a near-empty Shanghai mall last fall, Liz Clairborne CEO Paul Charron said, "We don't need to be here." For Liz Claiborne, which owns brands such as Juicy Couture and Lucky Brand Jeans, China has too many inexpensive local competitors. "That's not even counting the knockoffs," Mr. Charron said at the time.
Nevertheless, Mr. Winans has taken frequent scouting trips to Shanghai in the past few months. He took mental notes of his shopping excursions along the city's tony Huai Hai Road. He noticed peeling paint at expensive boutiques, mannequins with dirty feet and laundry hanging from a bamboo pole above a storefront on a street considered China's equivalent of Manhattan's Fifth Avenue.
Instead of feeling deterred, Mr. Winans, a 46-year-old fashion-industry veteran says, "I've had to get used to a whole different standard of presentation."
Other companies see an opening, too. Earlier this year, Kellwood opened Baby Phat and Phat Farm boutiques in Shanghai and plans to have 30 stores within three years. China already represents the "fastest growing region" for Levi Strauss, says Mr. Anderson. While sales are still small, he expects China in five years to represent a percentage "in the midteens" of the company's $4 billion in sales.
That's difficult when many factories producing clothes for Western labels are only permitted by regulators to produce for export markets, not China's domestic markets. Only a little more than 20% of factories making clothes for Liz Claiborne brands can produce for the Chinese market.
(A Nine West store on Wangfujing Lu, a popular shopping street in Beijing.)
The rest have permits to manufacture clothes for export only, and obtaining regulatory permission to do both is a lengthy process, according to people in the industry. One bright spot on the regulatory front: Foreign companies no longer have to form a joint venture with a Chinese company to open stores or sell products in the country.
Mr. Winans and other industry executives are excited at prospect of selling clothes and accessories to China's rising middle-class consumers. Mr. Winans says research shows that there are about 100 million to 120 million people in this group -- the "sweet spot," he calls it. "We should have been here two years ago," he says.
Mr. Charron, who is soon stepping down as Liz Claiborne's CEO, still has reservations about China. Despite some discussions with potential partners in China, the company is "not ready to declare victory at this moment," he says. "There are many opportunities to get tripped up in a place like China." (Source: The Wall Street Journal/CRIenglish.com)